sentimenTrader Blog


2018-08-17 | Jason Goepfert

This is an abridged version of our Daily Report.

Precious little optimism

Optimism on gold, silver, and platinum now ranks among the lowest in 27 years.

The combined Optimism Index on the three metals has been lower only a handful of days. The few other periods of historic pessimism led to good returns in gold, silver, and mining stocks.

Stiff selling in miners

The NYSE Arca Gold Miners Index fell 5% to a 52-week low on Wednesday then lost another 1% on Thursday. That has indicated capitulation in the past (see inside). The 3-day average Optimism Index of the GDXJ fund is now below 15.

An emerging bear market

Emerging markets are nearing a 20% drawdown from their peak for the first time in several years. Other times they initially declined 20% led to “feast or famine” returns, with the winners seeing limited losses and 10% gains, while the losers saw limited upside and 10% declines.

Shrinkage

Shares outstanding in popular funds that bet on a rise in volatility, like VXX, UVXY, and TVIX, have collapsed nearly 20% in just the past few days. This tends to happen to volatility rises even though the rise in the VIX hasn’t been all that large.


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2018-08-14 | Jason Goepfert

This is an abridged version of our Daily Report.

Junk bonds are anything but

High-yield bonds have been among the best performers short- and long-term. That has led to an extreme overbought reading in the Relative Strength Index as well as a 52-week high in the iBoxx Liquid High Yield Index.

That combination has usually preceded even more gains.

It’s the U.S. versus the world

Year-to-date, the S&P is up more than 4% while world stocks (excluding the U.S.) are down more than 4%. That’s never happened before. Other large differentials in YTD returns between the markets have led to weak returns in both, with world stocks tending to see the weakest returns.

Not golden

The GDX Gold Miners index lost more than 3% to land at a fresh 52-week low. Catching that falling knife worked out most of the time over the next few weeks.

New indicators

We’ve added Commitments of traders data for lumber, Ultra 10-year Treasuries and Ultra 30-year Treasuries. New Premium charts include risk reversals (an indicator of option market sentiment) for the Aussie dollar, British pound, Canadian dollar, euro, Japanese yen, Mexican peso and Swiss franc.


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2018-08-13 | Jason Goepfert

This is an abridged version of our Daily Report.

Non-dollar pain hits year high

A measure of positioning in the dollar has reached an extreme level amid its highest level in a year just as it nears its seasonal peak.

Forward returns in the buck were weak, especially in the next 3-6 months, while better in gold and emerging markets.

Equities lose more assets

Investors pulled an average of $4 billion per week from equity funds since June. That’s on par with other extreme outflows over a 10-week period, leading to gains for stocks every time over the next 2-3 months.

A little fear

Volume in inverse ETFs spiked on Friday as traders rushed to protect their downside or bet on some follow through next week. There have been 62 days when it reached Friday’s level according to the Backtest Engine, leading to a rebound in the S&P over the next week 71% of the time.

The latest Commitments of Traders report was released, covering positions through Tuesday

“Smart money” hedgers continue to be net long more than 20% of the open interest in 10-year Treasuries. The only two other times that happened, April 2010 and January 2017, led to rallies in TLT over the next six months.


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2018-08-10 | Jason Goepfert

This is an abridged version of our Daily Report.

Maybe bulls are just superstitious

Even though investors are buying, they won’t say they’re bullish in sentiment surveys. The AIM Model, which monitors an array of longstanding surveys, has been below 50% for 6 months, one of the longest streaks since 1970.

Nobody wants to short

Among active investment managers, even the most bearish one is betting on a rally, which is a break from other surveys which mostly show apathetic sentiment. Unlike other surveys, this one has less of a contrarian bent, however.

Call buyers return

On the ISE exchange, there were more than 200 call options bought on Thursday for every 100 puts. That’s typically interpreted as a sign of excessive optimism from options traders. One of the great things about the Backtest Engine is we can see if that’s actually the case.


For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-08-09 | Jason Goepfert

This is an abridged version of our Daily Report.

About those new highs

Mid and Small Cap indexes are hitting new 52-week highs, leading the Large Cap S&P 500 index as we saw on Tuesday. But fewer of those mid- and small-cap stocks in the indexes are also reaching 52-week highs.

Similar divergences led to weak 1-3 months returns, but strong 6-month ones.

Volatility strikes emerging currencies

Volatility on emerging market currencies is at a multi-year high relative to G7 currencies. That has led to periods of outperformance of emerging stocks relative to the worldv.

Getting extreme

Our proxy for the CNN Fear Greed model has climbed above 80. According to the Backtest Engine, that has led to a negative average next-day return that amounts to an annualized -4.9%. If it gets above 85, that drops to an annualized -11.8% and above 90, it declines to a putrid -36.5%.

Still leaving

According to the Investment Company Institute, investors pulled more than $3 billion from equity mutual funds and ETFs at the end of July.


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2018-08-08 | Jason Goepfert

This is an abridged version of our Daily Report.

Large caps lag mids and smalls

The S&P Mid Cap and Small Cap indexes have hit new 52-week highs this week while the large-cap S&P 500 still has not.

The lagging S&P 500 tends to catch up, with all three indexes usually rallying in the months ahead.

Loose conditions

Financial conditions continue to ease according to the money market, bond, and equity markets. They are even getting close to being extreme. It’s a good sign for stocks so far, but if conditions start to diverge, that would be a worry.

Seven-month low in fear

The VIX “fear gauge” closed below 11, its lowest close since early January. There have been 9 other times it closed below 11 for the first time in at least three months. Over the next month, the S&P 500 rallied 8 of the 9 times, with risk of only -0.4% compared to reward of +1.8%. Six months later, the S&P was higher every time.

Light ‘em up

The Optimism Index on unleaded gas has climbed above 75. According to the Backtest Engine, over the past 10 years when it has been above 75, the contract showed a positive return over the next two months only 33% of the time, averaging -2.9%.


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2018-08-07 | Jason Goepfert

This is an abridged version of our Daily Report.

The Dow’s long correction

The Dow has gone 130 days without a new high or 20% loss, one of its longer stretches in purgatory. Other periods when it got stuck in a correction mostly resolved higher, with a choppy 1-2 months generally leading to new highs.

S&P breadth points higher

Even as the S&P 500 meanders below its 52-week high, its Advance/Decline Line has not. Over the past month, a near-record number of positive divergences have triggered.

Cooked

The main ETF focused on Turkish equities (TUR) suffered another large loss on Monday, pushing its Optimism Index to a lowly 2. That’s not often seen on any fund. According to the Backtest Engine, since the financial crises it has been this low 9 times.

Site updates

Eric has added a couple of great new features to the site. Seasonality charts now include a “today” marker along with year-to-date performance, showing how the ETF (or index or commodity) has performed relative to its usual pattern. Check out corn, or IWM, for example.

He’s also added thumbnail charts for bonds, commodities, sectors and countries, the same as is shown later in each of these reports. It’s a great way to see sentiment for groups at a glance. You can check the What’s New section periodically to see the latest enhancements.


For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-08-06 | Jason Goepfert

This is an abridged version of our Daily Report.

Few highs as indexes rally

The S&P 500 has rallied close to its prior highs, but there is a divergence. Relatively few stocks are registering 4-, 12-, and 52-week highs as the index rallies.

It’s a concern among technicians but has not been a reliable warning sign.

Momentum is rolling over

The McClellan Summation Index dropped below +500 for the first time in months.

Similar bouts of waning breadth momentum led to weak short-term returns.

Staples continue to recover

The Staples sector has rebounded more than 10% from its low point. Similar rallies led to some shorter-term profit-taking, lasting up to a couple months.

The latest Commitments of Traders report was released, covering positions through Tuesday

“Smart money” hedgers have been aggressively adding to already record longs in 5-year Treasuries. They now hold more than 25% of the open interest net long, the most since 2005. Those Treasuries have rallied each time hedgers held so much of the open interest, though in 2005-06, those rallies were short-lived.


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2018-08-03 | Jason Goepfert

This is an abridged version of our Daily Report.

Riding the buck

Hedge funds have the largest exposure to the dollar in four years. Their returns over the past month have been highly correlated to moves in the buck. They also have a near-record inverse correlation to gold, which has preceded reversals in the metal the few other times they were so heavily inverted.

Market capped

Apple hit a trillion-dollar market cap, but it’s a dubious distinction. Other companies that first reached notable milestones soon suffered massively.

Enjoy the present

Consumers feel better about the present than the future to a near-record degree.

When this spread has started to reverse, stocks struggled, especially Tech.

Dip-buying binge

For the second time in a month, the S&P 500 fund, SPY, gapped down at the open below the prior two days’ lows, then reversed to close above those days’ highs. Since 1993, it has happened 14 times.


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2018-08-02 | Jason Goepfert

This is an abridged version of our Daily Report.

Curve favors the defense

A narrow yield curve has led to good returns in defensive sectors. By the time the spread between 2-year and 10-year Treasury yields got as low as it was in July, future returns in the dollar were muted to negative, leading to positive crude oil most of the time.

Investors leave commodities for tech

ETF flows in July show a preference for U.S. assets, especially bonds and tech stocks. Developed markets and metals have been shunned to a large degree, adding to months of outflows.

Nobody’s happy

On a day the FOMC updated its interest rate policy, stocks, bonds, and gold all declined. SPY, TLT, and GLD were all down at least 0.1%. That has happened 9 other times on a day the FOMC announced its intentions, leading to a rebound in SPY over the next four days only 3 times.

Utility surge

Among major sectors, Utilities are showing the best breadth. More than 90% of the stocks are trading above their 10-, 50-, and 200-day averages, the most of any sector, even though XLU is still more than 5% below its 52-week high.


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